Government bows down to demands from COSATU

By Jessica Anne Wood
Selected tax amendments that were to be implemented on 1 March 2016 are to be postponed by two years, following objections by the Congress of South African Trade Unions (COSATU). Government has agreed to halt the implementation of the sections dispute under the Taxation Laws Amendment Act.
COSATU disagree on the forced annuitisation of two-thirds of a person’s provident fund because they are concerned about the effect that this forced annuitisation would have in the absence of a comprehensive social security system.
Matthew Parks, parliamentary deputy co-ordinator for COSATU, told Justmoney: “Basically government has agreed to COSATU’s two demands. The one was to stop the compulsory annuitisation that would have come into effect on 1 March with the new Taxation Laws Amendment Act, which were adopted in December last year and signed into law by the president.
“And then the other demand that COSATU had that was linked to that was it is difficult for workers to agree to their provident funds being made into annuities in the absence of a comprehensive social security system. Government has agreed to release its discussion papers on comprehensive social security shortly. There is basically going to be a two year stopping of this annuitisation process to allow for engagement around it to take place.”
Minister of Finance Pravin Gordhan stressed that the only part of the Taxation Laws Amendment Act to be deferred to a later date is the annuitisation of provident funds.
What will happen on 1 March?
“It should be noted that the 2015 Tax Laws Amendment Act (and the 2013 and 2014 Acts) provisions relating to retirement will come into force on 1 March 2016, except for the annuitisation implementation date and related provisions. The tax harmonisation reforms will therefore continue to be implemented as scheduled on 1 March 2016,” emphasised Gordhan.
However, Parks noted that over the course of the next few weeks, changes will have to be made to allow for the changes that government and COSATU have agreed upon.
Gordhan explained that an urgent tax amendment bill will be tabled next week which will propose to Parliament to postpone the annuitisation requirement for provident funds for two years, until 1 March 2018.
“To ensure the integrity of the retirement system, the ability to transfer tax-free from pension fund to provident fund will also be delayed until 1 March 2018. Clarity on possible misinterpretations will also be provided in the bill, to ensure that payroll administrators apply the law in line with original intentions,” said Gordhan.
What changes are still coming into play?
COSATU doesn’t disagree with all of the changes in the Taxation Laws Amendment Act. When asked, Parks noted that COSATU does not have any issue with the 27.5% tax deduction on retirement fund contributions capped at R350,000 that will still be implemented on 1 March.
Gordhan highlighted that the following amendments will still be implemented from 1 March 2016:
  • The tax deduction for contributions to all retirement funds (including provident funds) will increase to 27.5 percent of the greater of taxable or remuneration, up to a cap of R350 000 per year, from 1 March 2016.
  • The minimum threshold required for annuitisation for pension and retirement annuity funds will still be increased from R75 000 to R247 500.
  • Aside from the issues covered in the urgent tax amendment bill, all other provisions legislated in the 2015 Tax Laws Amendment Act (and all other tax laws) will come into force on 1 March 2016.
Rather than forcing people to annuitise their provident funds, Parks suggested that government incentivise savers.
“It must be encouraged, but it can’t be forced. Rather have incentives that encourage people to see the benefit, but you can’t force them, you have to give them alternatives. In the country you have 34% long term unemployment, so it’s not like the US where unemployment is now less than five percent and it’s not like Sweden where you do have comprehensive social security which really will take care of you if you’re down,” said Parks.
Why is COSATU opposed to the changes?
Parks explained that the main concern COSATU has with the Taxation Laws Amendment Act is the impact that it will have on industrial workers. These include mine workers, and are often people employed on a contractual basis and who don’t receive a pension from the company.
“In absence of a pension, and because government pensions are so little, they will save up on their own. But it [the provident fund] is also like a safety net for them that in the event of them being retrenched or whatever, they have this money saved aside, which they can then use to sort the family out while they look for other work. Your average worker when he is retrenched takes about two years to find another job and UIF currently only covers you for a part of your salary and then only for eight months, it is being increased to 12 months later this year, there is a bill going through the process to do that,” noted Parks.
The main point COSATU is making is that these workers need access to their money and can’t have it locked away in an annuity or provident fund where they can’t access it.
“If you’re telling a worker that has lost their job and he has a home loan which he is going to lose because he can’t pay his debts, that he cannot touch his provident fund where he has R200,000 saved up, or R300,000 [he won’t understand]. And it’s difficult to tell someone who is 40 years old to wait until they’re 60 and access savings. Meanwhile your child needs emergency medical care [for example],” revealed Parks.
Gordhan clarified: “Owing to incorrect statements on these reforms, it should be re-iterated that the new laws do not make any changes to the treatment of retirement fund benefits when an individual resigns. Members of pension or provident funds who resign will, therefore, still be able to cash all their savings when they resign, subject to current taxation. This is strongly discouraged as it is not in the interest of members of retirement funds to risk their jobs, and also have less to retire on in future.
“We would also like to conclude by pointing out that members of all pension funds, including public servants who are members of the Government Employees Pension Fund (GEPF), are not adversely affected by the new laws and should not risk their jobs by resigning. The hard-earned savings of all members of a retirement fund are perfectly safe, and accessible to them now and after 1 March 2016.”

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